“It Still Hurts When You Lose”

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Charlie Mierswa is all over the court — or, more accurately, the arena. He’s talking with fans, backslapping security guards, visiting with VIPs, even wiping up a coffee spill. He’s highly visible, but then, so is his company: the New Jersey Nets of the National Basketball Association. The Nets played a preseason game in London this season; they have a seven-foot player from Guangdong Province, Yi Jianlian, who has grabbed the interest of Chinese fans and corporate sponsors alike; and the team boasts rap-mogul Jay-Z as one of its owners.

But that glamour is balanced by some harsh realities. Consumer demand for big-ticket entertainment is down, and the Nets haven’t helped themselves by missing the playoffs for the second straight season. Mierswa wants to boost ticket sales, stretch the marketing budget, and cut costs, all while preparing to rebrand the team. In two years the franchise says good-bye to New Jersey and heads for a Frank Gehry–designed arena in Brooklyn — a move long-delayed by legal wrangling. Once rechristened, the Nets expect to become one of the most valuable teams in the NBA. As Mierswa says, “It will change everything.”

You’ve gotten creative in how you price tickets and lure fans, but is it working?We thought sports was recession-proof, but clearly it’s not. We offered season tickets as low as $299 this season, but people weren’t even buying those. Then we offered to fill people’s gas tanks, which basically offset the price of the ticket. We still couldn’t get people to buy. We’ve introduced value pricing and payment plans. Season tickets for 2009 [next season] are as much as 30% less than last year. We have a 10-month payment plan where the Nets will actually make the 10th payment on the fan’s behalf. We also have prepayment incentives for those who want to save 5%. On the plus side, while it’s early in the game, we’re outpacing last year’s numbers.

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It must be a delicate balance, given how expensive some tickets are.Like any economic model, it’s either volume or pricing. Typically in a recession you’re looking for market share, which is volume. You end up in the same place economically; you just get there by a different path. That said, ticket prices range from $10 to more than $1,000, so if I’m going to properly manage the numbers, I have to split the population into tranches. In lower-price seats I’m trying to maximize attendance, whereas in the higher-price seats I’m making sure those people enjoy the experience enough to come back season after season. I have to serve the wants and needs of the value shopper and the “experience” shopper.

What’s the financial impact of not making the playoffs?As you can expect, in seasons when we’ve made the playoffs it’s a lot easier to sell tickets. But the fans come out for a fun evening — a lot of them are not necessarily distracted by the playoff hunt. On any given night there is so much happening at the arena, between the dancers, the entertainers, T-shirt tosses, and hospitality rooms. If we don’t make the playoffs, it’s unfortunate, but I don’t think it’s going to cost us fans. Because of the economics of the playoffs themselves, it doesn’t kill you. They are not as profitable as one would think. I mean, if you go to the finals, that’s awesome. But in the early rounds it’s more the prestige of making the playoffs.

What will the move to Brooklyn mean for the financial growth of the organization?Everything changes when we get to Brooklyn — I would expect us to be one of the most valuable teams. The difference is the density of the population. Also, we will be in control of the building. Just look at the sponsor values when we move to Brooklyn versus what we’re able to garner in New Jersey; it’s night and day.

The arena will be a destination in the center of Brooklyn, with clubs and amenities that you can’t find in other buildings in the marketplace, because they were built 20 or 30 years ago. It’s more than just basketball. There will be concerts and family shows. It will be another market for artists to play in.

Do you anticipate any problems raising the funds to build the stadium?The project has the political support that it needs, and the reason is the number of jobs it’s going to bring. The recent financing that the Mets and Yankees did — municipal debt with PILOT payments [payments in lieu of tax] — that’s the same vehicle we are going to use. The Yankees’s $370 million issue was oversubscribed. Clearly there’s an appetite for that kind of financing. We met with the rating agencies and they were very enthusiastic. All we need is the green light. We expect to get it in the next three or four months. We think we will prevail in the remaining lawsuits.

But you’re also scaling back the architectural plans for the arena, right?We’re going through a process of “value-engineering” the stadium plans. That will bring down construction costs to a level that will facilitate the financing. There’s no question it will continue to stand as a landmark in Brooklyn; it will also be economically viable in this marketplace.

For an NBA team that is spending a little over $60 million on player salaries, slightly below average, and has no one among the league’s 20 highest-paid players, does the league’s luxury tax help?The luxury tax is set as a percentage of basketball-related income. To the extent that your team’s salary exceeds the luxury-tax level, you have to pay a dollar-for-dollar penalty to the league, and the league redistributes the funds to the teams that didn’t spend that kind of money.

The intent of a luxury tax is to penalize teams that overspend and help teams that underspend. And being one of the teams that spends below the luxury-tax level, we do benefit from it. The issue is, is it achieving the desired result — keeping teams fiscally responsible with regard to their salary spend? The current [collective-bargaining agreement] runs through the end of the 2011 season, and if the luxury tax hasn’t worked, if people don’t like it, then I’m sure there will be a change.

What’s the best part of being the CFO of an NBA team?When I go to the games, and I know I have a part in bringing the excitement and thrills to all those people, that’s the part that makes my day. Conversely, when I’m at the arena and the team loses, that’s the low point. Whether you’re on the court or the guy signing the checks, it still hurts when you lose.

Do you ever get the urge to help improve on-the-court results?One year we kept losing games because we missed foul shots at the end of the game. I volunteered to find [room] in the budget to pay for a foul-shooting coach. For the right reasons they didn’t take my advice.